1Q16 EBIT and sales in line with our expectations. Midea reported strong 1Q16 results on 29 April after the market closed. Netprofit rose 17% yoy to RMB3.9bn on the back of a 9% decline in sales revenueto RMB39bn. 1Q16 EBIT and sales are 33%/26% of our full-year forecasts, vs. 32%/26-27% in 1Q114/15. The strong earnings were mainly driven by a GPmargin improvement. Key highlights of 1Q16 results. Sales declined 9% yoy to RMB38.6bn. Sales volume of air conditionersdeclined 25% yoy, while sales volume of refrigerators and washing machinesrose 17% and 16% yoy, respectively, according to China IOL. We believe ASPfor air conditioners improved slightly in 1Q16. According to management,installation cards for air conditioners increased 10% yoy in 1Q16. GP margin improved 3.1ppts to 29.9%, mainly driven by 1) product mixchanges to more high-end products, 2) lower raw material costs and 3)improvement in overall ASP. Opex ratio increased 0.8ppts to 17.2%. EBIT grew 12% yoy to RMB4.6bn, with EBIT margin increasing 2.3ppts to 12%. Inventory decreased 10% yoy to RMB10bn, attributable to improved ordermanagement as the company had adopted a make-to-order distribution model(i.e. T+3 order management system) for washing machines. Please refer to ournote, “Key takeaways from Midea's Investor Day on 27 April”, published on 28April for details on the T+3 system. Cash flow rose 164% yoy to RMB6.6bn, mainly due to decreased accountsreceivable. 2016 outlook. We believe management is decisive in de-stocking channel inventory for airconditioners, as it guided during the Investor Day on 27 April. We believe thisshould benefit Midea in the long run as it should: 1) enable the company toflexibly adjust production and R&D to address evolving and personalized enduserdemand; 2) improve operating efficiency by reducing inventory in both thefactories and distribution channels; and 3) optimize the supply chain byflattening the distribution channel. For 2016, we expect air conditioner sales revenue to slightly increase 4% yoy,driven by 1) recovering market demand, with installation cards increasing 10%yoy in 1Q16, 2) ASP gradually improving, and 3) a low base in 2H15.

A true global company; maintaining Buy 2016 to continue optimizing sales channel management We like Haier’s brand equity and its leading position in the washing machine and refrigerator segment. We believe management has identified the channel management issue and is optimizing the channel management. About 95% of its products sold overseas are own-brand products. We expect the GE Appliance deal to be completed by mid-2016, and it is likely to raise EPS by 15- 16% in 2017-18E. Overseas business accounted for 20% of total sales in 2015 after consolidation of Haier Singapore, and is likely to increase to 44% after consolidation of GE Appliance; maintaining Buy. 2016 to continue optimizing sales channel management We expect Qingdao Haier to continue streamlining its sales channel in 2016 and expect it to report organic growth of 3-6% during 2016-18E with bottom-line growth of 5-10% during the same period, mainly driven by GP margin expansion with a focus on development of high-end products. For 2016, we expect NP to grow 15% yoy to RMB4.9bn, including a one-off gain (RMB528m) from the re-classification of Bank of Qingdao (3866.HK, NR) from 1Q16. GE Appliance to raise NP by 15-16% in 2017-18E We expect GE Appliance to raise Qingdao Haier’s net profit by 15-16% in 2017-18E. In 2016, the increase should be about 10% of Haier’s net profit, as it is likely to start consolidation in 2H16. In our model, we have not factored in the acquisition of GE Appliance, as it is still awaiting approval. Valuation and risks We maintain our Buy rating, while lowering our DCF-based target price (9.5% COE, 2% long-term growth rate) by 6% to RMB10.16 to reflect the constraint output in air conditioners and the investment for high-end products. We have not factored in the GE deal as it is still awaiting approval. Our target price translates into 12x/11x FY16E/17E PE. Downside company risks include: 1) failure to develop overseas markets, 2) failure to integrate the acquired business, 3) delay in acquiring GE Appliance and 4) the continued connected transaction with Haier Electronics.

Sales up 2% and net profit up 19%. Yili reported 1Q16 result with sales increase 2% yoy to Rmb15,326mn and netprofit increase 19% yoy to Rmb1,554mn. Sales growth was a bit disappointed,but net profit growth was higher than our 2016 full year forecast at 9% andconsensus growth at 12%, which was helped by gross margin expansion andhigher non-operating income. Weak industry demand and intensive competition continued in 1Q16. Yili’s market share in UHT/chilled products expanded 240bps/140bps yoy to30.8%/19.3% in 1Q16, but its sales only increase 2% yoy, indicating thatindustry sales growth remained sluggish. Yili maintain intensive marketingspending and its selling expense/sales ratio increase 409bps yoy to 25.3% in1Q16. We believe the intensive marketing spending is necessary for long-termgrowth and expect this to generate more growth when the industry recovers. Margin expansion on lower in-put cost and improving product mix. Yili’s gross margin expanded 440bps yoy to 42.1%. We believe this is mainlyhelped by trending down industry raw milk cost and lower-priced inventory. Meanwhile, this is also helped by product mix upgrade. To recap, Yili’s salespercentage in key high-end products (including Satine, Ambrosial, Pro-Kido,Chang Qing and Mei Yi Tian) improved 500bps in 2015. Good visibilities on earnings growth; buy. We expect Yili’s market share continue to increase on its intensive marketingspending and its effective control in distribution channel. Meanwhile, weexpect its gross margin expansion to be earnings driver in near-term. Weforecast 9% yoy net profit growth. Yili remained as our top pick in dairy sector. We reiterate Buy. Key downside risks include 1) food safety issues, 2) lowerthan-expected sales growth in high-end products, 3) greater-than-expectedintensive competition.

1Q results in line with DBe but beat consensus Baosteel announced its 1Q16 results after market close on April 27. Baosteelrecorded revenue of RMB35bn, achieving 18% of the DBe and 20% of marketconsensus. Its bottom line arrived at RMB15.3bn, achieving 19% of DBe and39% of market consensus. Its results were in line with DBe but beat marketconsensus. We believe 1Q16 results should be positive to the share price. BuyRe-iterated. Profitability and volume both improved In 1Q16, China HRC price increased by 16% QoQ, while Baosteel’s ASPimproved by RMB423/t, up 12% QoQ. Company’s profitability significantlyimproved. Average unit gross profit of major products increased from negativeRMB964/t in 4Q15 to positive RMB538/t in 1Q16. Baosteel sold 5.62mmt steelproducts, up 7% YoY, which is the best 1Q sales volume number in the pastfour years. After switching its U.S dollar dominated debt to RMB dominateddebt, net financing cost significantly increased to RMB528mn, mainly fromincreasing interest payment and decreasing interest income. We believe thereis an RMB190mn inventory revaluation gain due to improved steel in 1Q. Healthy cash flow from operation and declining CAPEX Cash flow from operation significantly improved to RMB7bn in 1Q16 fromRMB5.8bn in 4Q16, while its CAPEX significantly cut to RMB3bn 1Q16, from5.7bn in 4Q15. In addition, its net gearing ratio was kept at healthy level as35% as of 1Q16 quarter end, after increasing mid-term bank note of c.RMB5bnand short term financing bond of c. RMB10bn. Company’s AR and inventoryincreased to 44 days and 69 days in 1Q16, from 37 days and 56 days in 4Q15respectively. However, its AP days also climbed to 75 days in 1Q16 from 60days in 4Q15, accordingly. Quality volume growth in 2016 expected, Buy reiterated We remain a cautious view on China steel industry and believe currentrestocking cycle will peak out in June, highlighted in the report “When will thiscyclical recovery peak out” published on April 15, 2016. However, Baosteelremains to be our top pick because of its expected quality volume growth fromZhangjiang project ramp up in 2016. Current Baosteel is trading at 0.82x BVPS,with 31% upside potential to our TP of RMB7.9. We reiterate Buy on Baosteel.

Stronger-than-expected margin mitigated weak JVs’ profit contribution SAIC Motor released its 1Q16results after market close today. The company’s1Q16gross revenue grew by 9.0% YoY to RMB185.2bn, with a 4.5% YoYincrease in vehicle sales volume during the period. Meanwhile, SAIC’s 1Q16gross profit grew by 29.0% YoY to RMB23.1bn with 2.0ppt YoY gross profitmargin improvement, probably driven by better product mix and reduceddiscounting at the JV sales companies, in our view. Meanwhile, there were 1)31.0% YoY increase in SG&A expenses and 2) 9.8% YoY decline in profitcontribution from its JVs/associates (mainly attributable to merely 1.0% salesvolume growth at Shanghai-Volkswagen (SVW) and 1.9% sales volume drop atSAIC-GM, and slower sales at its commercial vehicle units in 1Q16, in ourview). All in all, 1Q16net profit increased by 6.3% YoY to RMB7.9bn. Deutsche Bank view – stable earnings growth should be sustainable As SAIC’s 1Q16net profit accounted for 24% of our full-year FY16earningsforecasts of RMB32.8bn, we consider the results in line. Going forward, weexpect mild sales growth for SVW and SGM on the back of purchase taxstimulus and the rollout of more new models, including a few SUVs such asSVW New Tiguan. Together with the strong momentum at SGM-Wuling, wethink these developments will help SAIC Motor to resume 9-10% earningsgrowth in FY16-17, thus supporting future dividend payouts. Thus, wemaintain our Buy recommendation on SAIC Motor. Key downside risks aresales disappointment and unanticipated margin pressure.

Strong profit growth on higher margins Tonghua Dongbao (THDB) reported sales/core profit of RMB451m/160m in1Q16, representing YoY growth of 13%/33% respectively. The revenue growthwas dragged by declines in non-core businesses of TCM drugs andconstruction materials, while its insulin business still maintained a steadygrowth of approximately 23% in our estimate. We highlight the robust profitgrowth was also driven by lower growth in COGS and selling expenses.Management maintained 20% and 30% growth for insulin sales and core profitin 2016respectively. Insulin products achieved 23% growth in 1Q16 We estimate insulin products achieved sales of approximately RMB370m in1Q16, vs. RMB300m in 1Q15, representing growth of 23% in 1Q16comparedwith 22% in 2015. Management guided 2-3% ASP erosion in 2016, which canonly be compensated by higher volume growth. We highlight the company isusing 40R/50R as part of its risk mitigation strategy in case 30R drops out ofthe tender. As a reminder, the ASP of 40R/50R is 10-15% higher than that of30R, while 30R is the major type of insulin products which contributed 70-80%of insulin sales for THDB in 2015. Expecting margin expansion to continue in 2016 GM was 78% in 1Q16, vs. 73% in 1Q15, which we attribute to COGS savingsfrom procurement of insulin pens and loss-making business of constructionmaterials, as well as improved product mix. Management expected COGSsavings from insulin pens to continue with rising proportion of manual pens.However, management indicated GM for insulin APIs would be hard to predictdue to a high inventory from 2015. Driven by economics of scale, OPM arrivedat 44% in 1Q16, vs. 38% in 1Q15. We expect margin expansion to continue in2016, driven by improvements in product mix as well as operating leverage. Inaddition, we highlight the company booked RMB225m for the acquisition ofBionime in the long term equity investment, however the timeline for profitconsolidation is still uncertain. Management indicated that Bionime is likely tocontribute a dividend payment of RMB4-5m in 2016. Maintain price target of RMB29; risks Our price target of RMB29is based on 55x 2016E EPS of RMB0.53. We believe55x is justified as its A-share biotech peers which are trading at 49x on 2016EEPS with 22% growth in 2016(vs. the 30% we model for THDB). In our viewthe premium is justified by its higher growth sustainability and visibility ofinsulin franchise vs. most other therapeutics, and a compelling risk profile. Keyrisks include larger price cuts and pipeline failure.

2016-20 development strategy Yonghui released a five-year development plan (2016-20) in its audited FY15results on 27 April. According to the plan, it targets becoming one of the topthree offline retailers in China, by developing both online and offline channelsto cater to consumers’ evolving demands. It will focus on strengthening themerchandise operation capability by enhancing the supply chain managementand optimising business procedures. It targets 1) establishing strongrelationships with 300 domestic key suppliers and 30 overseas suppliers, 2)private label products accounting for 15-20% of total sales, 3) building 10regional DCs and 30 fresh food DCs, 4) building five to 10 central kitchens. 2016: focus on supply chain integration and digitalised management Yonghui plans to continue to improve the supply chain management for thefresh food and general merchandise divisions. For apparel, it will reinforceprofitability by improving inventory turnover, lowering costs, andstrengthening KPI reviews and motivation. It will develop a joint procurementwith allied partners to source from domestic and international suppliers. Itlaunched its first central kitchen in February 2016 in Chongqing to processfresh food, and it will build another two kitchens, in Beijing and Fujian. Lowering net profit by 9-12% for 2016-17E; maintaining Buy We cut our 2016-17E net profit by 9-12% to reflect the investment in supplychain management and lower-than-expected FY15 results, owing to corporaterestructuring. We estimate 38% net profit growth for FY16-18, on 20% rev. growth, driven mainly by adding 60-80 new stores each year, 2-3% SSSg andop. leverage. Prelim. 1Q16 rev. and net profit are 26% and 41% of our FY16forecast, respectively, vs. 25% and 36% in FY14. We believe Yonghui shouldbe a l/t beneficiary of China’s secular trends of modern retail and mgmnt’soperational expertise in fresh food. Our primary valuation methodology is aDCF, employing 9.5% COE, a 1.0 beta and a 2.5% TGR, which is at the highend of the 1-3% range we apply for the consumer sector (as China is one ofthe key drivers in the food retail consolidation globally). This produces a fairvalue of RMB11.6/share (previously RMB12.9), implying 39x FY17E P/E. Keydownside risks: keen competition; low CPI; challenge in nationwide expansion.

32% revenue growth partially mitigated weak margins and JVs’ profit. Huayu Automotive released its 1Q16 results before market open today. Thecompany’s 1Q16 gross revenue edged up by 32.4% YoY to RMB31.7bn, fasterthan passenger vehicle (PV) production volume growth of 7.3% YoY in Chinaduring the period, probably driven by the contribution from overseas interiortrim sales, in our view. Meanwhile, Huayu’s 1Q16 gross profit grew 31.6% YoYto RMB4.2bn with flattish YoY gross profit margin growth. However, with 1)36.7% YoY increase in SG&A expenses; 2) 10.5% YoY growth in profitcontribution from JVs/associates; and 3) a higher effective tax rate, 1Q16 netprofit increased by 3.1% YoY to RMB1.4bn, accounting for 28% of our originalFY16 earnings forecast, mainly due to the inclusion of Huizhong business. Deutsche Bank view – cut TP to factor in private placement dilution; Buy. We raise our FY16-17E by 14.2-14.3% to reflect better-than-expected FY15revenue and consolidation of Huizhong since FY16. As a result, we lift ourFY16-17E earnings forecast by 7.6-11.0%, partially offset by weaker-thanexpectmargins. However, our FY16-17E EPS estimates are lowered by 9.1-11.8% due to the dilution from 569.5m shares private placement completed inJanuary this year. Our target price is set at a target 10.5x average FY16/17E P/E (from 10xFY16E), about 11% below Huayu’s mid-cycle P/E of 11.8x. This is justified, inour view, as we expect Huayu to deliver 12.4% three-year net profit CAGR inFY15-18E. We think the expanding overseas sales should provide an additionalgrowth driver for Huayu. We maintain our Buy rating given attractive FY16EP/E valuation of 9.1x. Key downside risks are weaker-than-expected auto salesvolume, an inability to acquire new customers, market share loss, and anunexpected increase in raw material prices.

Midea’s annual Investor Day in Shunde on 27April Midea hosted its annual Investor Day on 27April. We visited its home ACautomation factory in Nansha, the innovation projects in its R&D workshop,and Ande Logistics. The managers of five divisions – home AC, commercialAC, washing machine, small appliances and kitchenware – presented therecent developments in those divisions. The key takeaways from the Q&Asession with senior management are: Destocking of home AC: Midea is de-stocking home AC from Jun-Jul 2015.This has reduced inventory by 40% at the regional sales offices and by 20-30%at the distributors from the peak. Shift from make-to-stock (压货) to make-to-order model: Management is quitedecisive on shifting from the current make-to-stock (demand push) distributionmodel to make-to-order (demand pull) model by introducing the “T+3” ordermanagement system. In T+3, there are four stages for a full cycle: 1) orderplacement; 2) material and parts preparation by suppliers; 3) final assembling;and 4) delivery of finished goods to clients. Midea’s subsidiary Little Swan(000418.SZ, NR) has piloted this model and has reduced the turnover period(from order placement to receiving the merchandise) to 12days from 28.Management believes this is achievable as it has: 1) standardized productionprocesses and procedures; 2) automated production; and 3) logistics capabilityfor nationwide delivery in a short time. Continuation of globalization strategy: It plans to enter the US and Europeanmarkets through M&A, backed by its strong operating cash flow. For theToshiba (6502.T, NR) white goods acquisition, it has formed working groupsfor ensuring a smooth transition. Midea has found that Toshiba’s refrigeratorsegment in Japan is loss making. The company plans to turnaround Toshiba(5-6% net loss ratio) in 2-3years. Deutsche Bank commentsWe like Midea’s initiatives to shift to the make-to-order distribution modelbacked by its strong execution capability. We believe this should benefit Mideain the long run as it will: 1) enable the company to flexibly adjust productionand R&D to address the evolving and personalized end-user demand; 2)improve operating efficiency by reducing inventory in both the factories anddistribution channels; and 3) optimize the supply chain by flattening thedistribution channel. However, Midea has to prolong the output constraint tofully de-stock the channel inventory, which could result in a short-term marketshare loss. The company is scheduled to release its 1Q16results on 30April.

A jump-start to the year; strong growth prospect looks underappreciated. While a strong 1Q16 result was largely expected after Jonhon released apositive profit alert on Mar.30 and later revised up its estimates on Apr.15, theactual net profit of Rmb166mn (+98% yoy) came in at the high end of itsguided range (+70%-100% yoy). We see upside to our full-year estimatesshould such earnings momentum be sustained, the likelihood for whichappears rising after the company gave out upbeat 1H16 profit estimates. Withthe stock currently trading at 28x/22x P/E on 2016/17 against a two-yearearnings CAGR of 34%, we believe valuation looks compelling compared to itsA-share listed A&D peers as well as in the context of A-share electricalconnector sector. Jonhon Optronic remains our preferred pick in our A-shareA&D coverage universe because of its strong organic growth profile. A surge in top-line + remarkable margin expansion = doubling profit. Top-line sales came in at Rmb1.46bn, up 51% yoy and 17% qoq, as strongmomentum for military sales and NEV connectors persisted into 1Q16. Netmargin increased by 2.7ppt yoy mainly driven by enlarged operational scale,which led to a 1.4ppt GPM expansion and a 2.1ppt drop in operating expenseratio, partially offset by higher effective tax rate. 1Q16 NPAT came in atRmb166mn, up 98% yoy and 14% qoq. The double-digit qoq growth isimpressive in our view given Chinese A&D companies’ earnings are particularlyskewed toward Q4 while Q1 is typically slow in terms of product deliveries. 1Q16 result accounted for 21% of our full-year estimate, well ahead of itshistorical seasonality (five-year average of 14% for Q1). Guided1H16 profit range points to upside potential to earnings. In the 1Q16 report, the company expects its 1H16 NPAT to come in the rangeof Rmb332-409mn, +30-60% yoy, representing 42%-52% of our full-yearestimate (vs. historical avg. achieved ratio of 44% in H1), which stands at 4-5%above the street consensus. The implied 2Q16 earnings would translate into aflattish to +41% yoy growth for the quarter, against a high comparison base(2Q15 was the strongest quarter last year). Valuation and risks. We retain our Buy rating and price target of Rmb45.5, which is derived basedon 35x 2016 EPS. Our target multiple is largely inline with the average of its Asharelisted electrical connector peers. Key risks include an unexpected delayin military orders and slower-than-expected civil market penetration.

ZKSH 1Q16 results in line with expectation. Zhong Ke San Huan announced 1Q16 results after market close on April 26th. Company’s revenue in 1Q16 was RMB790mn, down 2% YoY, achieving 20%DBe and 20% Bloomberg consensus, respectively. Its bottom line arrived atRMB63mn, up 2% YoY, achieving 20% DBe and 19% Bloomberg consensus,respectively. We maintain our positive view on China EV and global EV sales,which is likely to increase demand in volume and support the magnet prices. Stable gross profit margin and big net cash on hand. The price of PrNd oxide remained stable in 1Q16, while magnet price declinedheavily in March. However, ZKSH managed to maintain GPM stable. Its GPMimproved by 1.8ppt YoY and is still 0.6ppt higher than average GPM in lastyear. In addition, company’s cash flow from operation was as large asRMB200mn and accumulated cash on hand has arrived at RMB1,892mn as of1Q16 quarter end. ZKSH’s net cash ratio further climbed to 38.9% as of 1Q16quarter end from 35% in FY2015 year end. Positive view on EV outlook globally in 2016, Buy maintained. We retain our optimistic view on EV sales in China as well as globally. China ison its way to accumulate 5mn units on the road by year 2020 and the preorderof Tesla model 3 also demonstrates a very positive outlook on EV salesgoing forward in the world. Considering ZKSH’s quality products and marketshare in the high-end magnet products for EV, we believe it can benefit fromboth volume and price going forward. Buy maintained.

Robust growth delivered in 1Q16. Growth driven by oncology drugs, contrast agents and exports Hengrui reported revenue/core profit of RMB2,669/686m in 1Q16, representing YoY growth of 21%/24% respectively. Management attributed this to strong growth in exports, oncology drugs and contrast agents. We highlight that the company guided 15-20% for the domestic business in 2016, while its export business should have decent growth with the launch of Sevoflurane in the US. We continue to like its innovative drugs and export business and maintain our Buy rating. Growth driven by oncology drugs, contrast agents and exports. Management indicated that the export business achieved slightly higher growth, while the domestic business was around 20% in 1Q16. Therapeutic areas, oncology drugs and contrast agents achieved healthy growth of over 30% in 1Q16, but less than 10% growth in anaesthetics. Management highlighted that Apatinib had reached almost RMB200m sales and Imrecoxib sales doubled in 1Q16. Regarding exports, management suggested that Cyclophosphamide achieved growth of between 15% and 20% in 1Q16, partially contributed to by delayed revenue recognition in 4Q15. Management indicated that revenue recognition for the export business should be normal going forward. Additionally, Hengrui’s parent company introduced Drug Eluting Beads (DEBs) as an innovative cancer treatment, with two product launches of CalliSpheres and 8Spheres in April. Acting as a sales agent, the company expects that DEBs are likely to contribute around RMB50m in 2016. On margins, pipeline progress and policies. GM/OPM was 85.6%/29.0% in 1Q16 respectively vs. 83.6%/29.3% in 1Q15. Management guided that growth in selling expenses and R&D expenses would be slightly higher than revenue growth, due to market expansion in low-tier hospitals and steady progress of overseas clinical trials. On R&D, management indicated that Famitinib is in phase III for CRC and RCC, while Apatinib is in phase III for gastric cancer, liver cancer and lung cancer. Both drugs are expected to be launched in 2017-18. On tender progress, management expects that most provinces will implement new tender prices in 2H16 and 1H17. Maintaining price target of RMB59.5; risks . We base our price target of RMB59.5 on 43x 2016E EPS of RMB1.38. We believe that 43x is justified as A-share peers are trading at 26x with 19% EPS growth in 2016 (vs. the 25% we model for Hengrui). Key risks are delays in product launches and pricing pressure.

Reiterate Buy, new TP at RMB9.96; benefitting from cyclical recovery in China We reiterate our Buy rating on CSCEC with new target price of RMB9.96 pershare. CSCESC now trades at attractive valuations of 46% discount to NAV and5.7x 2016E P/E. CSCEC should benefit from the latest cyclical recovery in Chinaproperty, new constructions, and also an increase in PPP infrastructure givenits leading positions in all markets. For FY15, CSCEC’s market share in terms ofnew contract value in China was 7.8% and in terms of GFA under constructionwas 7.4%; both figures remained stable, indicating the company’s solid leadingposition within the industry. Hence, we believe that CSCEC will benefit fromrecovery in the property market in China. Benefitting from the cyclical recovery, thanks to the leading market position CSCEC should benefit from the cyclical recovery in China’s property market(via COLI) and also a strong pick up in commodity property constructions andFAI. In 3M16, sales value and volume of commodity properties in Chinaincreased by 54%/33% yoy, respectively. FAI for the same period has alsoincreased by 6.2% yoy. For 1Q16, CSCEC’s new contract value has increasedby 27% yoy to RMB348.3bn with GFA under construction up by 6% yoy (in-linewith the industry’s 5.8% yoy growth). In addition, COLI also recorded doubledigityoy growth in both sales volume and value in 3M16. As we are expectingthe property market to undergo a cyclical recovery in 2016, we believe CSCECwill continue to be a beneficiary due to its leading market positions. FY15 result in-line with estimates, demonstrating solid financials For FY15, revenue of CSCEC increased by 10% yoy to RMB881bn with netprofit up by 15.5% to RMB26.1bn. EPS was up by 10% yoy to RMB0.84/share,in-line with our estimate. The company declared DPS of RMB0.2/share,representing a stable 23% dividend payout ratio. As of end-2015, CSCEC’s netgearing was down from 61% at end-2014 to 37%, thanks to the increase incash position to RMB216bn. The company’s blended gross margin remainedstable as well as the SG&A expenses, indicating the strong execution of thecompany despite the general market turmoil in 2015. Attractive valuations at 46% NAV discount, 5.7x 2016E P/E Our new target price of RMB9.96 (lowered from RMB10.97) is based on 20%discount to our NAV of RMB12.45, down from RMB12.19, mainly as wefactored in the latest FY15 results. Key risks: unexpected policy/economicvolatility, and risks on collection of receivables.

SAIC Motor hosted a post-FY15-results conference call earlier today. Keytakeaways are as follows: - FY16 outlook: SAIC expects China auto sales to grow 4% YoY in FY16, withpassenger vehicle (PV) sales increasing 6% YoY and commercial vehicle (CV)decreasing 4%. Management believes 1) government’s promotion of newenergy vehicles (NEVs), 2) small-engine car tax stimulus and 3) yellow-labelvehicle scrappage will continue to support vehicle sales, while foreseeingpressure from 1) macro slowdown, 2) manufacturing cost increase due toemission standard upgrade and 3) price competition. - Gross profit margin: Management attributes the margin decline at local brandmainly to the increasing sales contribution from Roewe 360/350 sedan, partlyoffset by solid sales of MG GS SUV. They foresee gross profit margin for autoOEMs to remain a steadily declining trend due to 1) intensified competition and2) cost hike from emission upgrade. SAIC will strike to offset the impactthrough mix improvement by launching premium/high-end models. - New energy vehicles: SAIC sold 12.1k units of NEVs last year, including 10.7kRoewe E550 (up 2.9x YoY). Management aims at an annual NEV sales target of600k units by 2020 (200k for the local brand and 400k for its JVs) in order toachieve government’s emission requirement of 5.0L/100km. In addition, thecompany’s first internet car will be launched in 2H16E. - Inventory: Management believes the company’s inventory level is reasonable. According to SAIC, the all-channel inventory (OEM and dealer combined) forShanghai-VW (SVW) is about 1.8-1.9 month, while that for SAIC-GM (SGM) is2 months and 3.5 months for the local brand. - SUV: SAIC has planned several new SUV models (including facelift) for itsvarious brands, including new generation SVW Tiguan SUV, new SUV modelfrom SGM Chevrolet and Buick, and two SUV models from the local brand. Deutsche Bank view – marginally raise earnings forecast on higher margins We slightly reduce our FY16-17 net revenue forecast by 2.9-4.8% mainly onlower volume assumptions. However, we marginally raise our FY16-17 netprofit forecast by 0.1-2.0% on slightly better-than-expected margins. Wemaintain our target benchmark at 8x FY16E P/E, which is marginally below thecompany's 10-year historical trading average. This is justified, in our view, aswe expect SAIC to achieve a three-year net profit CAGR of 8.4% in FY15-18. On a P/BV basis, we believe the company's implied FY16E target P/BV of 1.4xis also justified, considering its 17% sustainable ROE. Going into FY16, we expect mild sales growth for SVW and SGM on the backof purchase tax stimulus and the rollout of more new models, including a fewSUVs. Together with the strong momentum at SGM-Wuling, we think thesedevelopments will help SAIC Motor to resume 9-10% earnings growth in FY16-17, thus supporting future dividend payouts. Key downside risks are salesdisappointment and unanticipated margin pressure.

A strong quarter to start 2016Aier reported revenue/core EPS of RMB915m/RMB0.12 in 1Q16, representingYoY growth of 40%/33%, respectively, vs. 32%/46% in 2015. The robust resultswere driven by growth acceleration in excimer surgery, cataract surgery andoptometry. Core profit growth was slower than revenue growth for the firsttime since 2Q13, which the company attributed to the consolidation of thenewly acquired HK entity. Management expects strong growth to continue andbelieves margin should remain stable or improve slightly. Growth acceleration achieved in all three core segmentsExcimer surgery, cataract surgery, and optometry achieved revenue growth of39%, 55%, and 42% in 1Q16, compared with 31%/40%/29% in 2015. Forexcimer surgery, volume growth was 26% in 1Q16 vs. 18% in 2015. Thissuggests approximately 10% ASP improvement, which we attribute to theramp up of VFLS (VisuMax femtosecond laser surgery). For cataract surgery,management indicated that volume growth was 60% in 1Q16, suggesting anaverage ASP decline due to outgrowth of low-/mid-end surgeries, a trend thatbegan in 2015. The company expects the strong growth to continue as thecataract surgery market is significantly underpenetrated when compared toother countries. Expecting further improvement in marginGross margin increased to 45.5% in 1Q16 from 44.1% in 1Q15, driven bystrong ASP growth in the excimer surgery business, cost savings inprocurement, and economies of scale. OPM decreased to 18.0% in 1Q16 from18.7% in 1Q15. Management attributed this to the consolidation of theacquired HK entity, which achieved sales/profit of approximately RMB29m/3min 1Q16. The company expects margins to remain stable or improve slightly. Increasing price target to RMB36, from RMB34; risksWe increase our PT to RMB36, based on 33.5x 2016E EV/EBITDA, as weincrease our 2016E EBITDA by 5%. We believe a 33.5x multiple is justified, asits Asia-listed peers are trading at 23x 2016E EV/EBITDA with 6% EBITDAgrowth in 2016 (vs. 36% for Aier). We believe Aier deserves a significantpremium because of its proven, replicable business model and strong earningsgrowth potential. Key risks include competition; expansion delays; slowerASP/volume growth.